XLY Analysis

The Consumer Discretionary Select Sector SPDR Fund (XLY)

I have entered a short iron condor spread on XLY, using options that trade for the last time 39 days hence, on January 17. The premium is a $0.54 credit and the stock at the time of entry was priced at $122.11.

The profit zone for this position is between $126.54 on the upside and $113.54 on the downside.

The implied volatility rank (IVR) stands at 30.2%.

Premium: $0.54 Expire OTM
XLY-iron condor Strike Odds Delta
Long 128.00 92.0% 8
Break-even 126.54 86.5% 13.5
Short 126.00 81.0% 19
Puts
Short 116.00 84.0% 16
Break-even 113.54 87.5% 12.5
Long 113.00 91.0% 9

The premium is 21.6% of the width of the position’s wings.

The profit zone covers a 3.6% move to the upside and a 7.5% move to the downside of the entry price, for total coverage of 11.2%

The risk/reward ratio is 3.6:1, with maximum risk of $196 and maximum reward of $54 per contract.

By Tim Bovee, Portland, Oregon, December 9, 2019

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TLT Analysis

iShares 20+ Year Treasury Bond ETF (TLT)

I have entered a short iron condor spread on TLT, using options that trade for the last time 39 days hence, on January 17. The premium is a $0.73 credit and the stock at the time of entry was priced at $138.83.

The profit zone for this position is between $144.73 on the upside and $131.73 on the downside.

The implied volatility rank (IVR) stands at 43.8%.

Premium: $0.73 Expire OTM
TLT-iron condor Strike Odds Delta
Long 147.00 90.0% 10
Break-even 144.73 85.0% 15.5
Short 144.00 80.0% 21
Puts
Short 134.00 81.0% 20
Break-even 131.73 86.0% 15
Long 131.00 91.0% 10

The premium is 24.3% of the width of the position’s wings.

The profit zone covers a 4.2% move to the upside and a 5.4% move to the downside of the entry price, for total coverage of 9.6%

The risk/reward ratio is 3.1:1, with maximum risk of $227 and maximum reward of $73 per contract.

By Tim Bovee, Portland, Oregon, December 9, 2019

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Live: Monday, December 9, 2019

11:50 a.m. New York time

I’ve entered the following share positions in my upgrades and revisions portfolio: CRCM at $12.42 per share, FANH at $26.17, PWR at $40.47, SPAR at 18.01 and TLYS at 12.51.

11:05 a.m. New York time

I took a look at GDXJ as a short iron condor trade, which with an implied volatility rank of 21.1% is below my standard of 25% or greater. But, if I squint my eyes to blur the numbers, could conceivably pass muster.

But it didn’t. The risk-reward ratio of 4.9% is higher than I like. So I shall pass on GDXJ.

FXE, with an IV Rank of 25.8%, does meet my standard. However, FXE tracks the Euro, the UK is voting on December 12 in an election that could have a huge impact on how Brexit plays going forward, and therefore could prompt significant movements in the EUR/USD exchange rate. Generally, I’m averse to leaping into news maelstroms, and I shall pass on FXE.

That’s it for options. A sparse month with two positions, XLY and TLT. I’ll check tomorrow to see if any other prospects meet my IVR  standard.

10:40 a.m. New York time

I’ve entered a short iron condor position on XLY; analysis posted.

10:20 a.m. New York time

I’ve entered a short iron condor position on TLT and posted an analysis.

10 a.m. New York time

I’m removing XLP as a prospective short iron condor play. The IVR calculation dropped significantly in early trading.

9:35 a.m. New York time

I’m a week late in setting up my short iron condor plays constructed from options expiring January 17. The problem was — and is — a lack of volatility. My rules call for an implied volatility rank of 25% or above. That metric gives my potential profits enough of a boost so as to protect against loss and make the effort worth my while.

Every month so far this year I’ve been able to count on at least half a dozen exchange-traded funds on my prospects list meeting that requirement.

Not this month. Even the old reliable, precious metals, has failed to meet my minimum. I delayed making trading decisions for a week in the hope that volatility would inch up a little at least, but to no avail.

So, I’m setting aside my disappointment and dealing with a real world, a necessity for any trader. I have three potential trades if I go strictly by my rules: XLP, TLT and XLY. If I fudge the rules and allow trades down to an IVR of 20%, then I can add USO, if I can build a trade that meets my other standards. And if I round up the decision from 19.5% to 20%, then I can add FXE.

I’ll be looking at all four today and trading those that allow me to build a reasonable position. Or perhaps none at all. As one of my mentors long ago once said, an old hand in the options game, “You’re an amateur, and that gives you an advantage over the professional traders. Unlike them, you don’t have to take a trade.” Wise words.

My screen for the revisions portfolio has no exits and five additions: CRCM, FANH, PWR, SPAR and TLYS. I’ll be making those trades today.

By Tim Bovee, Portland, Oregon, December 9, 2019

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Live: Friday, December 6, 2019

10:55 a.m. New York time

I exited three provisions from my portfolio guided by analyst revisions and upgrades, and entered one two position, leaving funds to enter two positions on the table for later.

AEIS went for a $64.75 credit, a profit of $3.31 per share, producing a 5.4% return over three days, or a $655% annual rate.

AEL was sold for a $29.89 credit, a profit of 91 cents per share, producing a 3.1% return over 14 days for a +82% annual rate.

BMCH brought in a $29.50 credit, a profit of 26 cents per shore, producing a 0.9% return over 17 days for a 195 annual rate.

The new kid on the screen is IBP, which I entered for a debit of $71.70 per share.

By Tim Bovee, Portland, Oregon, December 6, 2019

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Live: Wednesday, December 4, 2019

12:05 p.m. New York time

Two shares positions, IBP and MGRC, dropped off of the Upgrades and Revisions screen, and I exited each for a profit.

I added SNE to the Revisions portfolio for a $65.26 debit.

IBP sold for $69.37, an 86 cent gain per share. The position produced a 1.2% return over 22 for a +21% annual rate.

MGRC went $74.57, a gain of $1.53 per share. The position produced a 2.1% return over two days, or a +382% annual rate.

RH had dropped off of the Revisions screen earlier, but I held on to capture earnings after Monday’s closing bell. The symbol remains off of the Revisions screen but continues to appear on the Momentum screen. So I’m hanging on to the position and will consider adding the following to my rules:

A positions that drops off of the principal screen but continues to appear on a secondary screen that the trader is following can, at the trader’s discretion, continue to be held until it drops off of the secondary screen.

In the case of my operations, for the present at least, I’ve chosen Upgrades and Revisions as my principal screen because it’s forward looking, based as it is on analysts’ efforts to forecast earnings.

I’m continuing Momentum as by secondary screen. It is backward looking — how quickly the price of a stock been rising over several time frames. But its appearance on the Momentum screen implies that the uptrend is continuing.

By Tim Bovee, Portland, Oregon, December 4, 2019

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Live: Tuesday, December 3, 2019

1:45 p.m. New York time

Today’s screen for the upgrades and revisions portfolio produced two new symbols. I entered positions on both, AEIS at $61.44 per share and CNXM at $14.49.

In my options holdings, the underlying for my short iron condor on APA moved below the profit zone. It, along with XOP, will trigger an exit whenever they return to profitability, no matter how small. Meanwhile, expiration is Dec. 20, and I shall continue to hold.

By Tim Bovee, Portland, Oregon, December 3, 2019

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Live: Monday, December 2, 2019

12:25 p.m. New York time

I’ve entered a shares position in MGRC for a $73.04 debit and in MOMO for a $37.35 debit.

12:05 p.m. New York time

Shares trading:

No changes to my momentum portfolio or my income portfolio.

In the upgrades and revisions portfolio, RH has dropped off the screen. However, I shall hold it through the earnings announcement after the closing bell on Dec. 4. Two new positions have shown up on the screen, MGRC and MOMO. I shall enter positions on both today.

11:40 a.m. New York time

Friday, as I’ve noted, was management day, the day, 21 days prior to expiration, when I exit all profitable positions. Because of the Thanksgiving Day holiday, I moved my management of positions to today. And…. There’s nothing to manage.

Both of my remaining short iron condor positions are unprofitable to a large degree at the moment. The percent of maximum potential profit is in negative territory, -124.8% for APA and -63.8% for XOP. Both are in the energy sector. APA remains within its profit zone at expiration. XOP is below the zone.

At this point my APA and XOP positions go into sudden death mode. This means that I exit a position when it shows a profit, no matter how small.

My rules also require that I exit losing positions whenever they are more than a day away from profitability based on the rate of change metric. I’m modifying that rule this time, as a an experiment. I’ve gotten the impression with some trades that I would have had better results — smaller losses or a return to profit — if I had waited until the week of expiration to exit.  After all, time decay continues to work in my favor, and a lot can happen in three weeks. So my plan is monitor the losing positions, exit if they become profitable, and otherwise hold them until the week of their expiration on Dec. 20.

By Tim Bovee, Portland, Oregon, December 2, 2019

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